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Current and anticipated deficits, interest rates and economic activity

  • Blanchard, Olivier J.

There is widespread feeling that current deficits, in Europe and the U.S.,may hurt rather than help the recovery. This paper examines some of the issues involved, through a sequence of three models.The first model focuses on sustainability and characterizes its determinants. It suggests that the issue of sustainability may indeed ber elevant in some countries.The second model focuses on the effects of fiscal policy on real interestrates, and in particular on the relative importance of the level of deficits andthe level of debt in determining interest rates.The third model focuses on the effects of fiscal policy on the speed of the recovery. It shows how a sharply increasing fiscal expansion might be initially contractionary rather than expansionary.

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File URL: http://www.sciencedirect.com/science/article/pii/0014-2921(84)90067-9
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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 25 (1984)
Issue (Month): 1 (June)
Pages: 7-27

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Handle: RePEc:eee:eecrev:v:25:y:1984:i:1:p:7-27
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," Review of Economic Studies, Oxford University Press, vol. 32(2), pages 137-150.
  2. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  3. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
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